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Best Flow House: Barclays |
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Also nominated: Deutsche Bank and JPMorgan |
There have been some seismic shifts among investment banks active in the flow markets in the past year but not at the top, where Barclays, Deutsche Bank and JPMorgan dominate and should expect to capitalize further on rivals that are scaling down or exiting businesses entirely.
In a world where fixed-income, currencies and commodities sales and trading is becoming increasingly like cash equities, senior management of many of the investment banks outside of this top tier are being forced to decide whether they have the appetite or ability to run a full-scale all-in-one business servicing clients in all the product areas globally.
For Barclays, Deutsche Bank and JPMorgan, which provide institutional clients with this full-scale global capability, the question is not can they grow, but, by how much and in what direction.
Deutsche Bank and JPMorgan have been aggressively building their commodities trading businesses in recent years, while Barclays has sought to expand in cash equities and equity derivatives, and foreign exchange too.
While all three firms can claim success in each of these areas, in addition to sustaining their enviable market shares in rates, credit and FX, it is Barclays that stands out this year.
The UK investment bank has not only performed strongly in serving clients across the whole spectrum of rates, credit and FX, to commodities and equities, but more importantly is leading the advance of a development that could define the future of flow markets – over-the-counter clearing.
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“What our OTC clearing team is doing today is just as pioneering as the global netting agreement we took the lead on some eight years ago”
Guglielmo Sartori di Borgoricco, head of distribution, Barclays |
Guglielmo Sartori di Borgoricco, head of distribution at Barclays, says: “This is the natural evolution of that flow monster role, and an area that we believe is elemental to the flow market. Clearing will be the umbilical cord to the flow business in the future.”
What investment banks and the broader finance industry are preparing for is that all standardized OTC derivative contracts must be traded on exchanges or electronic trading platforms and cleared through central counterparties by end-2012 at the latest.
This has ramifications for the OTC derivatives market, the investment banks and their investor clients too.
Arguably well ahead of others, Barclays has invested accordingly, and is capitalizing on its lead.
“What does it mean to be a flow monster? The liquidity provision is very important, the ability to deliver great content is important, and the clearing side is the completion of it all, because once you have it all – the front office, back office and pipes working together – then you have great liquidity, content and execution. That is precisely how Barclays is set up,” says Sartori di Borgoricco.
He adds: “What our OTC clearing team is doing today is just as pioneering as the global netting agreement we took the lead on some eight years ago.”
Ralph Segreti, head of FICC OTC clearing distribution for Europe and Asia, is equally bullish, arguing that growth in this area is expected to boom
He says: “Clearing is an area where our work with clients really comes together. We realized early on that clearing was absolutely elemental to the future of our platform and that it would help us strengthen the partnerships we have with our clients. So we had an early and deep commitment to OTC clearing, and it is one where we are starting to reap the benefits.”
Segreti believes this business is set to grow substantially from clearing roughly $60 billion of trades a week currently.
He says: “We are only doing a fraction of the business we expect to do, but we have a very scalable solution in place and we are ready to facilitate the growth as it comes.”
Time will tell if Barclays manages to up-scale this business to a size that generates healthy returns, but in the meantime the firm’s global flow sales and trading business will doubtless continue to perform strongly, and particularly in areas where it has most to gain.
In equities, for instance, Barclays now has an 8% market share of all US volume, and in Asia the firm has tripled its market share on the Tokyo Stock Exchange and increased its market share on the Hong Kong Stock Exchange.
Barclays – ranked third by market share in Euromoney’s 2011 FX survey – is also gaining ground on Deutsche Bank’s dominance in the global FX market.
Nick Howard, head of distribution for Europe, the Middle East and Africa, says: “We have been consistently building our FX business in all three regions. In the Americas it takes a couple of years to on-board some of the big accounts, but we have gained market share there, and that is partly a result of the tailwind effect from the Lehman acquisition. We’ve also invested heavily in technology, particularly around the FX forwards market.”
